Interbank rates spike as CBN plans cash withdrawal

Overnight lending rates rose sharply on Friday to 27 percent from 10.25 percent last week following scramble for funds as lenders sought to meet a Central Bank of Nigeria, CBN cash reserve requirement, reports Reuters.
The CBN was expected to withdraw about N72 billion ($362 million) from commercial lenders to enforce its cash reserves requirements, CRR on April 16, triggering a surge in demand for funds on the interbank market.
The apex bank requires commercial lenders to set aside 75 percent of public sector and 15 percent of private sector deposits in cash in their respective accounts with the regulator.
“Demand for funds was very high … in anticipation of the CRR debit on Thursday,” one dealer said.
The secured Open Buy Back (OBB) rate closed at 27 percent as liquidity thinned out, from 9 percent last week, four percentage points below central bank’s benchmark interest rate of 13 percent.
Traders said the liquidity shortage was compounded by lack of cash flow to the banking system because there were no Treasury bills maturing during the past week.
“We expect the market to be tight next week, while rates should hover around 25 percent until central bank repays some matured Treasury bills,” another dealer said.